Nigeria plans VAT increase in push to raise non-oil revenues

Nigeria plans to increase value-added tax on goods, the finance minister said, as Africa’s biggest oil exporter seeks to reduce its reliance on crude sales.

Zainab Ahmed, addressing journalists late on Wednesday after a cabinet meeting, said the government proposed raising VAT next year to 7.2 per cent- up from 5 per cent. The current level is one of the lowest in the world.

The planned rise must be approved by parliament before it can become law.

President Muhammadu Buhari’s government has repeatedly said it wants to boost non-oil revenues since oil sales make up 90 per cent of foreign exchange receipts. Raising more money from taxes has proved difficult in a country where so many small business are not registered.

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Ahmed said the cabinet approved the proposed VAT rise when it met on Wednesday.

“This is important because the federal government only retains 15 per cent of the VAT, 85 per cent is actually for the states and local government. The states need additional revenue to be able to meet the obligations of the minimum wage,” she said.

Nigeria’s minimum wage was increased in April to 30,000 naira ($98) a month from 18,000.

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Prior to the minimum wage rise the government had argued that many of Nigeria’s 36 states struggled to pay salaries of state employees.

The proposed VAT hike is part of a broader drive to increase tax revenues. Last week Nigeria’s tax chief told Reuters 5.32 trillion naira ($17.39 billion) was collected in taxes in 2018 and his office was targeting 8.9 trillion naira this year.

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